Making sense of this crazy world
I can’t swerve the US/Israel and Iran conflict this week
In last Friday’s edition of our weekly update, I said I would swerve the conflict with Iran as we didn’t know what would unfold, although we did know that oil and gas prices were beginning to rise. I’m not sure anyone was quite prepared for what was unleashed across the Middle East, and how countries like Oman, Bahrain, Qatar, Kuwait and the UAE would get caught up in the conflict.
The rhetoric around the conflict has progressed from hopefully lasting “just a few days” to a few months, possibly longer. Nobody knows, but what we do know is how the markets feel about unfolding events. They hate uncertainty.
Strangely, when wars break out, there is often a relief rally across stocks when, finally, there is no longer conjecture around whether there will be a war. This didn’t happen with the Russian invasion of Ukraine, and it hasn’t happened in this current conflict either. Although there has been a build-up of tension, this conflict hasn’t been as protracted as many other conflicts. Besides, the Middle East is used to attrition – but not on such a wide scale.
There has been shock and awe at the extent of Iran’s retaliation, and it’s likely to escalate following the sinking of the Iranian battleship just off the coast of Sri Lanka. The news feeds are hot and frequent, as the dynamics shift like the sand. No one knows how this is going to be resolved, and second-guessing or predicting is far from an exact science.
Investment-wise, we need to continue to believe in the principles of investing. Ironically, the most resilient assets have included US technology stocks, which were seemingly becoming unloved. Amongst the worst to be hit have been South Korean technology stocks, which were previously very much in vogue.
Across our balanced portfolios, we have been building a greater exposure to Global bonds, but even they have been impacted, due to fears over inflation because of higher oil and gas prices. This has had a knock-on effect on expectations for global growth.
For now, we are making no changes to the portfolios, for we believe the immediacy of the conflict will pass, even if there are ramifications for certain sectors in the short to medium-term. Making short-term changes may also prove to be folly because the landscape can change quite quickly. On saying this, we won’t hesitate to rotate assets if prudent.
Oh, and I nearly forgot, there was the Spring Financial Forecast from Rachel Reeves on Tuesday. This is the subject matter I’m going to swerve this week because it didn’t tell us very much that we didn’t already know, and depending upon what unfolds in the Middle East, the anticipations and predictions could be wildly off.
This week’s content:
- Main short-term developments
- Oil and gas prices surge
- Energy security is vital
- Fears over interest rate hikes
- Korean stocks recover some losses
- Vulnerabilities return around Europe
- Investors keep faith with European and Emerging Markets
- Logistical problems for airlines
- A regional conflict is turning into a global conflict
- Conclusion
Main short-term developments
I know I’m setting myself up here, as there will be a delay between writing this piece and sending the update for you to read, but here goes:
- Iranian missile and drone attacks spread, with Azerbaijan becoming the latest country to be hit by Tehran. Baku has threatened to retaliate.
- Waves of US and Israeli strikes continued to pummel Iran. Israel has also targeted Hezbollah in Lebanon.
- Israel delivers a sweeping evacuation order for southern Beirut.
- UK Prime Minister Sir Keir Starmer announced he was sending four extra Typhoon fighter aircraft to the region for defensive operations.
- European jet fuel prices soared to their highest level in nearly four years, as shortages disrupted some repatriation flights from Oman.
- China has ordered its biggest refineries to suspend exports of most oil and gas products.
- The price of Brent oil cooled from a week-long rally, after the US said it was considering options to address a jump in oil and gasoline prices.
- Asian stocks regained some footing following a volatile week, and US and European futures are mixed.
Continues…
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